On October 24, 2018, the Bureau of Consumer Financial Protection (BCFP), formerly known as the CFPB, entered into a Consent Order with Cash Express, LLC. Cash Express is a small dollar lender based in Cookeville, Tennessee, that operates 328 retail lending outlets in Alabama, Kentucky, Mississippi, and Tennessee, and offers short-term loans and check cashing services to its customers. Cash Express agreed to a $200,000 penalty and to pay $32,000 in restitution to resolve allegations that it violated the Consumer Financial Protection Act by engaging in deceptive and abusive practices.
The BCFP alleged that Cash Express engaged in deceptive activity by stating or implying that it intended to take legal action on out-of-statute debts, debts that were beyond the relevant statute of limitations period, when in fact it had no intention to file a legal action on these debts. Specifically, the BCFP alleged that Cash Express sent over 19,000 letters to more than 11,000 consumers with time-barred debts but only sued five of these 11,000 consumers. In contrast, Cash Express sued thousands of borrowers whose debts were not time-barred.
The BCFP further alleged that Cash Express engaged in deceptive activity by repeatedly indicating to borrowers, in loan documents, collection letters, and other communications, that it might report delinquencies to consumer reporting agencies when, in fact, Cash Express, as an institution, did not provide information to consumer reporting agencies. Interestingly, the allegedly deceptive statements referenced in the Consent Order stated that Cash Express may or might report negative information to consumer reporting obligations.
Finally, the BCFP alleged that Cash Express engaged in abusive conduct by failing to inform customers that it would exercise a right of set-off by retaining portions of cashed checks to pay outstanding obligations owed to Cash Express. The BCFP acknowledged that Cash Express disclosed this practice to consumers as part of its application process but took issue with Cash Express’ practice of not disclosing its intent to retain a portion of the check at the time of the transaction. The Consent Order referenced training materials that instructed Cash Express employees to avoid disclosing its intent to exercise its right of set-off until after Cash Express completed the transaction.
Small dollar lenders should pay particular attention to this Consent Order. However, the order also impacts debt collectors and anyone who services consumer accounts.
What It Means
First, companies that service consumer debt should take note of the BCFP’s theory for imposing liability associated with attempts to collect on out-of-statute debt. Interestingly, the BCFP did not directly attack Cash Express’ practice of stating or implying that it might take legal action on out-of-statute debts and instead focused on the discrepancy between Cash Express’ stated intention to take legal action and failure to actually take that action. The FDCPA directly prohibits a debt collector from “threat[ening] to take any action that cannot legally be taken or that is not intended to be taken.” The BCFP essentially used its UDAAP authority to extend this FDCPA requirement to a non-debt collection company. This is not the first time the BCFP used its authority in this way and recently discussed the issue in the September 2018 CFPB Supervisory Highlights when it observed entities in the payday lending industry engaging in a deceptive act or practice in their collection letters.
Second, consumer financial services companies should carefully analyze statements regarding furnishing of information to consumer reporting agencies and ensure those statements align with company practices. It may not be sufficient to simply use the words may or might when those statements do not align with a company’s actual practices. While Cash Express never furnished information to consumer reporting agencies, it is not clear how the BCFP would apply this theory to more borderline situations. For example, would the BCFP use this theory to pursue a company that includes generic credit reporting language on all loan documents but only furnishes information to consumer reporting agencies on certain types of loans? Would they pursue a company who at one point was reporting on all loans but stopped reporting for a period of time?
Third, this Consent Order may shed some light on the BCFP’s recently announced intent to better define the term abusive. In this case, the allegedly abusive behavior had a fairly direct financial impact on consumers and was allegedly a systemic company policy. The Consent Order further emphasizes the BCFP’s position on clear disclosures and transparency to consumers. Additionally, the penalty appears to be smaller than the penalties that the BCFP would have sought under former Director Richard Cordray.